Question

Instructions: 1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%. 2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually. a) What is the expected rate of return on the stock? b) If you require a 10% rate of return, what is the value of the stock to you? c) Would you invest in the stock? Explain. 3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%? 4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely. a) If the stock currently sells at $23.50 per share, what is the stock's expected return? b) If you require a return of 10.5%, what is the value of the stock for you? c) Should you make the investment? Explain.

          Instructions:
    1) What is the value of the preferred stock when the dividend rate is 14% and the par value is $100? The discount rate is 12%.
    2) Assume a preferred stock is selling for $33 per share in the market and pays a dividend of $3.60 annually.
       a) What is the expected rate of return on the stock?
       b) If you require a 10% rate of return, what is the value of the stock to you?
       c) Would you invest in the stock? Explain.
    3) A common stock paid $1.32 in dividends last year and is expected to grow indefinitely at an annual rate of 7%. What is the value of the stock if you require a return of 11%?
    4) A common stock paid $1.32 in dividends last year. Dividends are expected to grow at 8% annually indefinitely.
       a) If the stock currently sells at $23.50 per share, what is the stock's expected return?
       b) If you require a return of 10.5%, what is the value of the stock for you?
       c) Should you make the investment? Explain.

Added by Toni G.

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